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Generalized Asymmetric Power ARCH Modeling of Exchange Rate Volatility

Author

Listed:
  • McKenzie, M.
  • Michell, H.

Abstract

This paper considers the ability of the Power ARCH model introduced by Ding, Granger and Engle (1993) to capture the stylised features of volatility in 17 heavily traded bilateral exchange rates. This Power ARCH model nests a number of models from the ARCH family. The relative merits of these nested ARCH models can be considered using the standard log likelihood ratio test. The results of this paper suggest that in the presence of symmetric responses to innovations in the market, the GARCH(1,1) model is preferred. Where asymmetry is present, than the inclusion of a leverage term is worthwhile as long as a power term is also included.

Suggested Citation

  • McKenzie, M. & Michell, H., 1998. "Generalized Asymmetric Power ARCH Modeling of Exchange Rate Volatility," Papers 98-2, Melbourne - Centre in Finance.
    • Handle: RePEc:fth:melrfi:98-2
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    Cited by:

    1. Dakhlaoui, Imen & Aloui, Chaker, 2016. "The interactive relationship between the US economic policy uncertainty and BRIC stock markets," International Economics, Elsevier, vol. 146(C), pages 141-157.

    More about this item

    Keywords

    EXCHANGE RATE ; ECONOMIC MODELS ; VOLATILITY;
    All these keywords.

    JEL classification:

    • C50 - Mathematical and Quantitative Methods - - Econometric Modeling - - - General
    • C51 - Mathematical and Quantitative Methods - - Econometric Modeling - - - Model Construction and Estimation
    • F32 - International Economics - - International Finance - - - Current Account Adjustment; Short-term Capital Movements

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